Pay raises shrink at small businesses

Growing numbers of small businesses are abandoning the idea that they must give their workers raises every year.

"The days of the traditional merit increases and cost-of-living increases seem, at least for now, to be behind us," says Carrie Cherveny, vice president of employment practices for AlphaStaff, a Fort Lauderdale, Fla.-based firm that provides companies with human resources services such as payroll, benefits administration and hiring assistance. "What we are seeing is compensation tied to corporate performance — you'll get a raise or bonus if we do well."

Companies that provide payroll services say the average pay levels at small businesses show how cautious owners still are about raises. According to an analysis done by the payroll company Paychex, the average monthly paycheck at small businesses in November was 1 percent larger than it was a year earlier. In April 2011, by contrast, the average paycheck was up 3 percent from April 2010. Paychex bases its numbers on pay at more than 500,000 companies.

Raises were likely higher in early 2011 because companies were compensating employees for pay that was frozen or cut during the recession, says Frank Fiorelle, the senior director of risk management at Paychex. The slowing trend now may be reflecting the weaker economy, he says.